Romney and Bain Capital: The Secrecy is Killing Him

Here I am, infuriating many New Yorker readers by finally saying something complimentary about Mitt Romney—I thought he did pretty well yesterday in his speech to the N.A.A.C.P.—and he goes and falls flat on his face again. Or rather, his hometown paper, the Boston Globe, trips him up, questioning his story about when exactly he left Bain Capital. He says he quit in February, 1999. Two Globe reporters turned up documents that say otherwise. One of them, which Bain Capital filed with the government in 2001, refers to Romney as the “sole stockholder, Chairman of the Board, Chief Executive Officer, and President” of the firm.

Once again, the Romney campaign is on the defensive, fending off hostile questions about what was supposed to be his biggest asset as a candidate: his business career. In view of the furor over Bain Capital’s history of firings and downsizings, the timing of Romney’s departure from the firm isn’t merely a historical curiosity. He insists he wasn’t responsible for any of the actions the firm took after early 1999. If it turns out that he was actually running the business—or helping to run it—for several years after that date, his credibility will be shot. “It’s time for Mitt Romney to come clean so that the American people can make their own judgments about his record and his motivations,” Stephanie Cutter, Obama’s deputy campaign manager, said in response to the Globe story.

Off we go, down a familiar route.

Ever since last winter, when Rick Perry started calling the Mittster a “vulture capitalist,” it was clear that some aspects of his career as a leveraged-buyout specialist could be turned to his disadvantage, and that the Obama campaign and the media would pound on them until election day: the workers Bain Capital fired and the factories it closed down in trying to turn a profit on its investments; the debts it piled on the companies it acquired; the hefty dividends and “management” fees it extracted from them, even as some of them were entering bankruptcy; the ultra-low income-tax rate that Romney and his colleagues enjoyed as a result of the scandalous “carried interest deduction” that afforded to private-equity moguls and hedge-fund managers.

Private equity is basically a racket. It may be a productive racket, although there is controversy about that. Some studies show that firms and plants taken over by firms like Bain Capital see bigger increases in output per worker than comparable companies that remain independent. But those productivity boosts are largely one-off situations produced by downsizing the labor force, firing people, and outsourcing some of the jobs they do. Sustained increases in productivity and innovation are much harder to find, as so is evidence that the rise of private equity has improved the performance of the economy as a whole, rather than just making a few people like Romney very rich.

But that’s not the issue here. What’s killing Romney now is another aspect of the private-equity business, and Bain Capital in particular, which has received rather less attention: its opacity and secretiveness. As a private company, Bain Capital isn’t legally obliged to say much about what it does, but its aversion to public disclosure goes beyond standard norms. Like the Carlyle Group and other big private-equity firms, it deliberately withheld as much information as it could, both to create an aura that would help it attract outside investors and to disguise how much money its partners were making.

The clash between the demands of a Presidential campaign and the private-equity industry’s culture of secrecy was always going to be a problem for Romney. So it has proved. For as long as he and his former firm refuse to shed more light on their activities and finances, investigative reporters and Democratic researchers will continue to dig for nuggets of information that can be portrayed in a negative light.

This latest story appears to fall into that category. It’s not news that, in some of its official filings with the Securities and Exchange Commission, Bain Capital continued to describe Romney as an executive of the firm well after he stopped working there full-time and went to rescue the Salt Lake City Olympics. The Globe’s contribution was to unearth more of these documents, submitted by four different business units associated with Bain.

Romney’s campaign has said that the descriptions of him as a Bain executive were just legal boilerplate, reflecting the fact that it wasn’t until 2002, three years after he stopped working for Bain Capital on a day-to-day basis, that he and the firm reached a severance agreement. Today, Team Romney reiterated that message, and Bain Capital issued a statement saying: “Mitt Romney retired from Bain Capital in February 1999. He has had no involvement in the management or investment activities of Bain Capital, or with any of its portfolio companies, since that time.”

But this statement raises as many questions as it answers. If Romney had “retired” from Bain Capital, why did the firm continue to describe him as its chairman and chief executive? And if he was still the firm’s “sole stockholder,” can he really have been as detached from its activities as he claims? “It doesn’t make a whole lot of sense to say he was technically in charge on paper but he had nothing to do with Bain’s operations,” Roberta S. Karmel, a former S.E.C. commissioner who teaches at Brooklyn Law School, told the Globe. “Was he getting paid? He’s the sole stockholder. Are you telling me he owned the company but had no say in its investments?”

On top of everything else, the timing of the Globe story is horrible for Romney. In recent days, he’s been trying to move beyond criticisms of his campaign, some of them from Republicans—both about policy matters (e.g., his lack of a coherent economic plan) and his failure to hit back aggressively to attacks on his record. “If you’re responding, you are losing,” Romney told Fox News yesterday.

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